Markets

Apple's Self-Imposed iAd Bottleneck Is Killing It in War vs. Android

By Jim Edwards

Updated on: October 6, 2010 / 9:48 AM EDT / MoneyWatch

Adidas' (ADS.F) decision to abandon advertising on Apple (AAPL)'s iAd mobile network says a lot about how Apple's battle with Google (GOOG) for control of online advertising could play out. Basically, the contest boils down to Google's "Wild West Web" vs. Steve Jobs' "Walled Garden of Perfection." Historically, digital media has favored the Wild West over potted versions of the web.

Apple has gone to impressive lengths to buck this trend. Jobs believes that the iPad and iPhone's superior deliver system will convey more beautiful, more effective ads to users -- and he will thus be able to charge a premium for them and, hopefully, dominate the mobile advertising market.

Google, on the other hand, has taken the opposite tack: Its products are ugly, but they're free for users and cheap for advertisers. They're functional and they're everywhere. Google's Android mobile operating system does 90 percent of what Apple's does, but at a fraction of the cost to users or advertisers.

At stake is control of the ad-based operating system of the future. That OS will be mobile, obviously. Currently, it's a race between Apple (and iAd) and Google's Android. (Microsoft (MSFT) seems to be stuck with the PC market because no one in their right mind buys a smartphone that runs on Windows. In fact, once you've used Android, it's tempting to ask, "Why can't this run on my laptop and liberate me from Microsoft's endless security patches?")

We shouldn't make too much of the Adidas' pullout, but it does illustrate Apple's strategic problem. Adidas balked after Apple rejected Adidas' creative concepts three times, and there was a lack of transparency on ad placement and timing. Chanel has also given up on Apple. Of 17 advertising partners named by Apple in July, only five had ads running on iAd by mid-August. It would literally be quicker to advertise in a newspaper than on iAd right now.

Of more concern is the lack of a kit for ad developers. That sounds like just another problem for the tech department but it's actually a corporate strategy problem for Apple: The company wants so much control and approval of the ads that run on its system that it creates a bottleneck for decisions that Google's Android will never have. The market hates bottlenecks, and tends to route around them in the long run.

Check out an Android phone. Sure, the ad under my App Killer is currently suggesting I retain personal injury law firm Binder & Binder even though I haven't been injured, but that's not the point. People are spending money on Google's mobile free-for-all.

The battle is playing out quickly. Ad traffic growth is up on Android while it's plateaued on iPhone. Having said that, Apple's share of the market is growing. It won't be clear who wins until there's a Nielsen-type company giving everyone the same data.

There are signs that Jobs understands that his Walled Garden bottleneck (don't worry, I'm nearly done torturing this metaphor) is a problem. Apple is slowly loosening developer guidelines, allowing app makers to use software Apple doesn't like. While one hesitates to agree with Yahoo! (YHOO) CEO Carol Bartz, on this occasion she may be right:

"That's going to fall apart for them," Bartz said about Apple's iAd service. "Advertisers are not going to have that type of control over them. Apple wants total control over those ads."

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Image by Flickr user Etwood, CC